Income Tax (ISR) in El Salvador
The Impuesto Sobre la Renta (ISR) in El Salvador is a progressive income tax that applies to individuals and businesses. Salaried employees have monthly withholdings that include AFP, ISSS, and ISR calculated on taxable income.
Mandatory Salary Deductions
Before calculating ISR, two mandatory contributions are deducted from gross salary:
- AFP (Pension): 7.25% of gross monthly salary
- ISSS (Social Security): 3% of gross salary, capped at a $1,000 monthly salary base (maximum $30/month)
Taxable income = (Annual gross salary) - (Annual AFP) - (Annual ISSS)
El Salvador ISR Tax Brackets
ISR is calculated on annual taxable income using progressive brackets:
| Bracket | Annual income | Rate | Fixed amount | |---------|--------------|------|-------------| | I | $0.01 - $4,064.00 | Exempt | $0 | | II | $4,064.01 - $9,142.86 | 10% | $0 on the excess over $4,064 | | III | $9,142.87 - $22,857.14 | 20% | $508.89 + 20% on the excess over $9,142.86 | | IV | Over $22,857.14 | 30% | $3,251.74 + 30% on the excess over $22,857.14 |
El Salvador uses the US dollar (USD) as its official currency since 2001 (Monetary Integration Law), so all ISR calculations are done in dollars.
Practical Example
For a monthly gross salary of $1,000:
- Monthly AFP: $1,000 x 7.25% = $72.50
- Monthly ISSS: $1,000 x 3% = $30.00
- Annual gross salary: $12,000
- Annual deductions: ($72.50 + $30.00) x 12 = $1,230
- Annual taxable income: $12,000 - $1,230 = $10,770
- Annual ISR: $508.89 + ($10,770 - $9,142.86) x 20% = $508.89 + $325.43 = $834.32
- Monthly ISR: $834.32 / 12 = $69.53
- Net salary: $1,000 - $72.50 - $30.00 - $69.53 = $827.97
In addition to employee deductions, the employer pays AFP (8.75%) and ISSS (7.5%). These amounts are not deducted from the employee's salary.
Employer Contributions
Employers also have mandatory contribution obligations:
- Employer AFP: 8.75% of employee salary
- Employer ISSS: 7.5% of salary (capped at $1,000)
- INSAFORP: 1% of salary (job training fund)
These contributions are in addition to the salary and do not affect the employee's net pay.
Salaried employees with a single employer generally do not need to file an annual ISR return, as monthly withholdings cover the tax obligation. However, if you have additional income sources, you must file.
Frequently Asked Questions
ISR is calculated on annual taxable income (gross salary minus AFP and ISSS deductions) using 4 progressive brackets: exempt up to $4,064, 10% up to $9,142.86, 20% up to $22,857.14, and 30% on the excess.
Employees contribute 7.25% of their gross monthly salary to the AFP (Pension Fund Administrators) system. The employer additionally contributes 8.75%.
Employees contribute 3% of their salary to ISSS (Salvadoran Social Security Institute), capped at a monthly salary base of $1,000, meaning a maximum deduction of $30 per month.
If your annual taxable income is equal to or less than $4,064 (approximately $338.67 gross monthly), you are exempt from ISR. Only AFP and ISSS will be deducted.
ISR is calculated on an annual basis but withheld monthly from salary. The employer divides the estimated annual tax by 12 and withholds it each month.
ISR is governed by the Income Tax Law (Legislative Decree No. 134 of 1991) and its subsequent amendments. It is administered by the General Directorate of Internal Taxes (DGII).
Yes, overtime pay is part of taxable income and is subject to ISR. It is added to gross salary to determine the applicable tax bracket.